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SIPAIA6400_001-002_2025_3 - Microeconomic Analysis for International and Public Affairs Problem Set 8, Individual Portion

Single choice

Suppose the following three bets; Win $100 with probability 1/3 and lose $50 with prob. 2/3 Win $100 with probability 3/4 and lose $300 with prob. 1/4 Win $100 with probability 19/20 and lose $1900 with prob. 1/20 A risk-neutral individual will

Options
A.be indifferent between all three bets
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Step-by-Step Analysis
Consider the concept of risk-neutral evaluation: a bet’s attractiveness is determined solely by its expected value, not by its risk. Option analysis: - For the first bet: compute the expected value......Login to view full explanation

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